2022 (8) TMI 1245 - AT - Income Tax

Addition u/s 68 - Cash credit unexplained - HELD THAT - Assessee has failed to justify that consultancy income claimed by it to have earned during the year under consideration was genuine consultancy income earned by it, and rather the assessee has converted unaccounted and undisclosed cash under the garb of alleged consultancy income and we hold that no such consultancy services were rendered by the assessee. The assessee failed to provide identity and creditworthiness of the persons giving cash to it towards alleged consultancy services and genuineness of the transaction could also not been proved by the assessee, and we have no hesitation in holding that it is the unaccounted and undisclosed money/income which has been brought into the books of the assessee under the garb of consultancy income, and this entire transaction of consultancy income was coloring device adopted by assessee to give legitimacy to its unaccounted and undisclosed cash/money/income by depositing cash in bank during demonetization period, to avoid bank notes held by it from becoming valueless as legal character of old bank notes of denomination of Rs. 500 and Rs. 1000 were withdrawn, owing to demonetization announced on 08th November, 2016. We have observed that both the authorities have passed well reasoned ,detailed and speaking order, and we are not inclined to interfere with the orders passed by authorities below, and we confirm the appellate order passed by ld. CIT(A). We also hold that learned CIT(A) rightly relied upon decision of Hon ble Supreme Court in the case of Sumati Dyal 1995 (3) TMI 3 - SUPREME COURT and Durga Prasad More 1971 (8) TMI 17 - SUPREME COURT as the claim of consultancy income set up by the assessee is a coloring device adopted by the assessee to convert its unaccounted and undisclosed money which was going to become valueless due to bank notes of Rs. 1000 and Rs. 500 ceased to be legal tender , due to demonetization announced on 08th November, 2016 . The authorities below have rightly invoked provisions of Section 68 and made additions to the income of the assessee as the amount stood credited in books of accounts of the assessee, and the assessee failed to satisfy the mandate of Section 68, as identity and creditworthiness of the payer is not proved nor genuineness of the transaction of alleged consultancy income was proved. Once Section 68 is invoked, then AO has rightly applied tax-rate provided within provisions of Section 115BBE of the 1961 Act. So, far as expenses claimed by the assessee are concerned, we are of the considered view that the assessee could not show that it was engaged in any business or profession whatsoever, and in our considered view, the assessee is not entitled for claim of deduction of expenses claimed by it. - Decided against assessee.

Summary

Issues Involved:
1. Legitimacy of consultancy income claimed by the assessees.
2. Application of Section 68 of the Income-tax Act, 1961.
3. Application of Section 115BBE of the Income-tax Act, 1961.
4. Adequacy of books of accounts and supporting documents.
5. Justification for cash deposits during the demonetization period.
6. Consistency of income trends before and after the demonetization period.
7. Non-appearance of the assessees before the tribunal.

Detailed Analysis:

Legitimacy of Consultancy Income:
The assessees claimed consultancy income in cash, which was significantly higher than in previous years. The Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)] found the income to be disproportionate and unsupported by adequate documentation. The Tribunal noted that the assessees failed to provide details such as the addresses and PANs of the persons from whom the consultancy income was received, and the scope of the consultancy services rendered.

Application of Section 68:
The AO invoked Section 68 of the Income-tax Act, 1961, treating the consultancy receipts as unexplained cash credits. The Tribunal upheld this view, noting that the assessees failed to prove the identity, creditworthiness of the payers, and the genuineness of the transactions. The Tribunal referenced several judicial precedents, including Roshan Di Hatti v. CIT and Sumati Dayal v. CIT, to support the application of Section 68.

Application of Section 115BBE:
The AO applied Section 115BBE to tax the unexplained cash credits at a higher rate of 60%. The Tribunal agreed with this application, noting that the provision was designed to tax unexplained income at a higher rate to prevent the misuse of tax provisions for concealing black money.

Adequacy of Books of Accounts and Supporting Documents:
The Tribunal found that the assessees did not maintain adequate books of accounts or supporting documents to substantiate their claims of consultancy income. The Tribunal emphasized that the assessees, being private limited companies, were required to maintain proper books of accounts under both the Income-tax Act and the Companies Act.

Justification for Cash Deposits During the Demonetization Period:
The Tribunal observed that the assessees deposited significant amounts of cash during the demonetization period, which was claimed to be consultancy income. The Tribunal found this explanation unconvincing, noting that the pattern of cash deposits was similar across multiple companies in the same group, all of which deposited exactly Rs. 8,00,000 each. The Tribunal concluded that the cash deposits were likely an attempt to convert unaccounted money into legitimate income.

Consistency of Income Trends:
The Tribunal noted that the assessees showed negligible income in the years preceding and following the demonetization period, with a sudden spike in income during the year of demonetization. This inconsistency further supported the Tribunal's conclusion that the consultancy income was not genuine.

Non-Appearance of the Assessees:
The Tribunal proceeded to adjudicate the appeals on merits despite the non-appearance of the assessees, who had failed to appear despite multiple notices and had moved an application for early hearing.

Conclusion:
The Tribunal dismissed all nine appeals, upholding the AO's and CIT(A)'s findings that the consultancy income claimed by the assessees was not genuine and that the cash deposits during the demonetization period were unexplained cash credits taxable under Section 68 and Section 115BBE of the Income-tax Act, 1961. The Tribunal emphasized the importance of maintaining proper documentation and the onus on the assessees to substantiate their claims with credible evidence.